Tech firms duck taxes

Jeremy Mehrle, a collector of Macintosh and other Apple computers, poses for a photo behind a bar of classic products. Apple reported $40.4 billion in holdings overseas and had an effective global tax rate of 12.6 percent over the past three years. (AP File Photo/Jeff Roberson)

Jeremy Mehrle, a collector of Macintosh and other Apple computers, poses for a photo behind a bar of classic products. Apple reported $40.4 billion in holdings overseas and had an effective global tax rate of 12.6 percent over the past three years. (AP File Photo/Jeff Roberson)

Many of Silicon Valley’s biggest firms will benefit from a two-year extension of a tax provision – included in the January fiscal cliff deal – allowing them to defer taxes on royalties earned by their foreign subsidiaries. The Joint Committee on Taxation estimates this will cost the U.S. government more than $1.5 billion in the next two years.

Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee of the Senate Committee on Homeland Security and Governmental Affairs, charged at a hearing in September that U.S. companies have stockpiled $1.7 trillion in earnings overseas, all of which has gone untaxed by the U.S. Treasury.

“The bottom line of our investigation is that some multinationals use our current tax system to engage in shams and gimmicks to avoid paying the taxes they owe,” Levin said at the hearing. “It is a system that multinationals have used to shift billions of dollars of profit offshore and avoid billions of dollars in U.S. taxes, to their enormous benefit.”

On Feb. 7, Sen. Bernie Sanders, I-Vermont, introduced a bill that would eliminate companies’ ability to defer taxes on income deemed permanently reinvested.

Levin’s subcommittee is examining Silicon Valley companies that have become efficient at avoiding taxes in part by transferring money among foreign subsidiaries in countries designated by the U.S. as tax havens.

Kimberly Clausing, an economics professor at Reed College in Portland, Ore., estimates that the federal government is losing more than $90 billion in tax revenue annually from U.S. businesses that transfer earnings overseas.

That amounts to nearly half the corporate tax paid by all U.S. companies in 2011. It would be enough to fund public schools and higher education in California for more than two years or cover 206 days of military operations in Iraq and Afghanistan, according to state and federal budget data.

For many multinational corporations based in the United States, Clausing said, the top corporate income tax rate of 35 percent is a myth.

“I think our system’s stated intention and its actual practice have diverged to a point where it’s bordering on ridiculous,” she said. “If you look at the firms in question, they aren’t paying anywhere near that rate.”

Of the 50 largest Bay Area tech companies, 17 estimated the U.S. taxes they owed on overseas earnings. If these companies were taxed on that money today, they would owe the U.S. Treasury $25.9 billion, according to their own estimates. The other companies avoided disclosure by citing an exception that estimating their tax burden was impractical.

Most of the companies analyzed by the Center for Investigative Reporting support a lobbying effort in Washington for a one-time tax holiday that would allow them to transfer foreign earnings to the United States at rates as low as 5 percent. An industry group, which calls itself the WIN America Campaign, has spent $760,000 on lobbying since it was formed in 2011, federal records show. Its backers include the Silicon Valley Tax Directors Group, made up of representatives from dozens of tech companies.